Fortune claims that it was briefed on the music plans by sources in the record industry and insiders at YouTube-owner Google, who declined to be named.

Gangnam Style is the most viewed YouTube video.

The publication says that the YouTube music service would have its own negotiating team and operating unit, but would also "have some overlap with new features also rumored to be coming to Google's Android music platform, Google Play".

Its sources claim that Google Play would offer a "digital music locker" on Android devices, enabling people to buy, store and manage their collection of tracks.

YouTube's service would instead enable anyone to stream music for free, but supported by advertising.

Fortune also said that a subscription model is being considered for both services that would "unlock additional features".

"While we don't comment on rumor or speculation, there are some content creators that think they would benefit from a subscription revenue stream in addition to ads, so we're looking at that," the spokesperson said.

A move into music streaming would make great sense for YouTube, as it is already a popular platform for people to listen to music online.

The majority of YouTube's most-viewed videos are music, including Psy's 'Gangnam Style' topping the list with 1.38 billion views.

According to a Nielsen "Music 360" report from 2012, 64% of teenagers prefer to consume music on YouTube over any other music listening and discovery platform.

YouTube already sells adverts against music videos, with a cut going to record companies.

Fortune says that Warner Music has signed up to both YouTube and Google's music initiatives. Warner is said to have gained 25% of digital revenues from streaming last year.

However, it is thought that there is still disagreement between the music industry and tech companies such as Google over how much content should be given away for free by streaming services, particularly in terms of access on mobile devices.

The so-called 'freemium' model of free music with adverts attracts more customers, but subscriptions encourage people to view music as something that is paid for, which is preferable for the labels.

Google and YouTube would also be entering a very competitive market, with Spotify, Pandora, Rdio, Rhapsody and Soundcloud all well established, offering huge music libraries to stream with additional features.